A critical evaluation and comparative study on section 10(1)(o)(ii) foreign employment exemption
Date
2022
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
University of the Witwatersrand, Johannesburg
Abstract
In 2001, South Africa changed to a residence-based system of taxation to align with international best practice and to limit the opportunities for tax arbitrage (Manuel, 2000, 36.). Section 10(1)(o)(ii) of the Income Tax Act 58 of 1962 (the Act) was amended to exempt foreign employment income of a resident if the resident was outside his or her country of residence for a period exceeding 183 days (National Treasury, 2000, 5). National Treasury cautioned against this exemption and in the Explanatory Memorandum on the Revenue Laws Amendment Bill, 2000 it was stated, The effect of the relief measure will be monitored to determine whether certain categories of employees abuse it to earn foreign employment income without foreign taxation. The main purpose of the exemption was to prevent double taxation from occurring, considering the limited number of double taxation agreements concluded between South Africa and other countries at the time (Mzizi, 2017, 10). The exemption created an opportunity for double non-taxation where the source country imposes little or no tax on employment income and no tax was applied in South Africa (Legwaila, 2019). Consequently, in the Budget Review 2017, National Treasury sought to
amend the provisions of s 10(1)(o)(ii) as it was seen to be ‘excessively generous’. At first, National Treasury proposed to repeal the exemption, however after much consultation and public comments received, National Treasury introduced a capped exemption limited to R1 million in line with the principle of fairness and progressivity (National Treasury, 2017b, 7). Subsequently, in the 2020 Budget Review, the exemption threshold was revised upwards to R1.25 million per year from 1 March 2020 to encourage all South Africans working abroad to maintain their ties to South Africa. In this report, the researcher investigates the qualifying requirements and implications of s 10(1)(o)(ii) on South African resident expatriates, their employers (local and foreign) and the South African Revenue Service (SARS)
Description
research report submitted to the Faculty of Commerce, Law and Management in partial fulfilment of the requirements for the degree of Master of Commerce specialising in the field of Taxation
Keywords
UCTD, South African resident expatriate, Local employer, Foreign employer, Foreign employment income, Foreign employment income exemption, Income Tax Act, Breaking tax residency
Citation
Margolius, Caryn. (2022). A critical evaluation and comparative study on section 10(1)(o)(ii) foreign employment exemption [Master’s dissertation, University of the Witwatersrand, Johannesburg]. WireDSpace.https://hdl.handle.net/10539/38614